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The Rise of Cities and the Fall of Affordable Housing

by Marc Ambinder August 16, 2016

Millennials come by the hundreds to a Whole Foods anchor store on Grand Avenue in Downtown Los Angeles, chatting with friends, their work bags hanging off their shoulders. Some browse the buffet to find the right garnish for their burgers. (The root hummus is especially popular.) Others grab a piece of artisanal bread, or a bottle of wine, or just some coffee, and shake off the day, watching the setting sun reflect off the glass buildings.

Photo: Marc Ambinder

JuneWon Lee, 27, works at a marketing firm. He’s here to pick up a kale salad before heading home a few blocks away. His studio apartment is brand new. It’s part of a building that used to house a gas company. Until a year ago, Lee lived all his life in the Southern California suburbs (aside from college in Boston). Then, looking to upgrade, he moved. Not outward, to another of Los Angeles’s historic neighborhoods – but inward, to the center of a city whose downtown core was widely mocked just a decade ago.

American cities, once left for dead, are back, thanks to Millennials like Lee. Millennials are packing up their education, values, and expectations and moving in towards dense city centers in major metropolitan areas, foregoing the cheaper rents and the clutches of parents living along the periphery.

For decades, suburbs gobbled up the economic benefits that other generations of young Americans brought with them. But starting after the 2008 Financial Crash, the current generation of young people, the Millennials, began to give cities a second look. Now, the economy has rebounded across the country. In cities like Denver and Minneapolis, companies are moving in and good jobs are coming back. In Downtown Los Angeles, more than 60 tech companies have laid root during the past five years. Construction cranes swing across the skyline. But these trends are not distributing their benefits equally.

Maurice Harris was sitting next to Lee on the Tuesday night I visited the Whole Foods. Harris, a Los Angeles native, went to elementary school down the street. He loves the ambience of rejuvenated downtown. “When I was growing up, just getting a bus around six p.m. was dangerous. And now,” he says, looking around, “we’re here at a damn Whole Foods!” He wanted to stay downtown, so he rented an apartment, but he couldn’t afford to keep it for long. “Basically, the owner wanted an empty building he could sell, so he just raised rents until everyone left,” Harris says.

There is not nearly enough housing stock to hold all the people who want to live here. As a result, prices have risen rapidly and stubbornly, exacerbating inequality and creating perverse incentives for developers, as well as political challenges for elected officials in Los Angeles and dozens of other major cities. Millennials—18-to-35-year-olds who came of age at the turn of the century—seem to be responding with innovation and improvisation. They’ve embraced an economic arrangement based on mutual benefit.

If you can’t find long-term housing downtown, you can probably find an Airbnb rental for at least part of the time. The owner of that Airbnb may be able to continue living in her apartment because she’s rented it out to you. If you can’t afford a car, Uber and Lyft compete for your ride to work. If you need to earn extra money to make ends meet, you might spend your idle hours driving for one of them. These glitzy sharing economy startups are often cast as rapacious predators, but their popularity is a natural consequence of the way that cities themselves are evolving.

Think of the physical geography of an urban core as a collection of boxes. When demand is high, you can put more people in the same box, or you can add boxes on top of boxes. In suburbs, you don’t need boxes, because there’s so much more space. During the past two years, stubborn housing shortages and sky-high rent have begun to push younger renters and would-be condo owners outward to suburbs once again. But affordability and more space come with a big catch: to keep their jobs and maintain their social lives, they’ll be forced to commute. People living in the suburbs will spend more of their day driving, if they live in places like Los Angeles, Orlando, or metro Atlanta, or will further crowd already choked up public transportation systems in places like the Washington, D.C. suburbs or the San Francisco Bay Area.

“Nothing contributes more to sustainability problems than long commutes, but the shortage of housing in inner cities is forcing people to drive more to get to work,” says Micah Weinberg, the president of the Bay Area Council Economic Research Institute.

Cities, now tasting the fruits of economic growth, often make it a priority to convince Millennials to stay. The less transient their population, the higher their tax base, and the more sustainable their growth in the long run. More Millennials have college degrees, which translate to $570,000 more in lifetime earnings than a high school diploma, than any previous generation of young adults. As Millennials age, they’ll either lay down roots in cities, becoming economic anchors, or they’ll leave, taking their education, talents, and money with them. The question, then, for Downtown Los Angeles – and for many cities like it – is: What will it take to keep its younger residents?

The Context: The Rise, Fall, and Rise Again of American Cities

For the second half of the 20th century, cities were said to be in perpetual decline. After World War II, veterans hungry for opportunity and armed with GI-bill-paid-college diplomas fled cities for space and sunlight. So did jobs, factories, and corporations. Outer-ring exurbs, or “edge cities,” grew a few decades later, as American workers migrated from the Rust Belt to the Sun Belt, a process that took about 60 years and turned many industrial cities into ghost towns.

Left with smaller tax bases and declining property values, dozens of cities shrunk. Mayors and urban thinkers reacted by trying to force structure and grandeur, often prioritizing the aesthetics and economic needs of the remaining, older, white residents at the expense of those who were poorer and brown. Robert Moses bulldozed vibrant neighborhoods for his highways, parks, and buildings. A backlash against urban planning called for the preservation of the creative chaos that often put off outsiders but served as home for people who couldn’t – or didn’t want to – escape cities.

Then, the black middle class started leaving, too, especially in the South and East. Washington, D.C. became one of the most class-stratified major cities in the world. Cities became nightmares in the 1980s, with their center cores turned into combat zones. In the 1990s, Downtown L.A. was so desiccated that (you’ll remember) some of O.J. Simpson’s prosecutors wanted to move the trial to Santa Monica, in order to get a “fairer” – i.e. whiter, higher income – jury.

In the 21st century, cities became cool again. Urbanists credit the broad-based drop in crime rates that began in the last decade of the preceding century, along with the Clinton-era economic recovery, for providing room for developers to once again be creative with inner city space. Alan Ehrenhalt, the former editor of Governing magazine, calls it the “Great Inversion”: The nature of work and families has changed so significantly that demand for a “center” to life pushed people with money towards cities, rather than away from them.

Beginning around 2010, the older half of the Millennial generation joined this wave. Millennials now make up about a third of those seeking new homes. They are highly social, and cities allow for contact and diversity. Many of them are thinking less about family and stability and more about careers, friends, and culture. “We are a very transient generation,” JuneWon Lee says. “We crave experiences and connections and something new, very quickly. And that’s what you can get here that you can’t really get elsewhere.”

In 2010-2011, the growth of major cities outpaced the growth of their suburbs for the first time in almost a century. Millennials led the charge. Between 2006 and 2014, Philadelphia gained more than 120,000 Millennials, a surge of 41 percent – a faster Millennial growth rate than that of the ten largest cities in the United States. For cities, small shifts in where this demographic moves can mean the difference between a declining tax base and tens, if not hundreds of millions of dollars, in development.

The behaviors and concerns of these Millennials will determine the fate of cities. Cities, in turn, have the opportunity to shape the lives Millennials will live as they grow older and start families. But even in cities with intellectual dynamism and hipster cachet, like Austin and Seattle, persistent housing shortages and chronic economic inequality threaten to tarnish the luster of what writer Richard Florida calls the “Creative Class.”

The Problem: Too Many People + No New Building = Housing Crisis

Tiffany Hernandez, 23, moved to Downtown L.A. four years ago. She grew up in a family with eight siblings in nearby Downey. Her parents taught her to take trains by herself at a young age. As soon as she was independent, she took one downtown, got out at Little Tokyo, and began to look for a job. She found one almost immediately, as a barista. Her rent was $800 a month for about 1,450 square feet, in a nice studio over L.A.’s newly invigorated Grand Central Market. Just down Broadway was a theatre where her mother worked when she was a child. “I have learned everything about life I need to learn here,” she says of the city. “But it’s been really hard at times, too.”

Had she not found a way to stabilize her rent through a program that locks in rates for some tenants, she would now be paying $2,000 for that same apartment, she says – and she would have had to move out of downtown.

Hernandez works several jobs. I ran into her at the Arts District Brewing Company, a popular craft brewpub nestled amidst high-end real estate developments and a mass transit project. It opened last year, catering to artists and younger families.

One of her customers, Jareb Leiwer, orders a Riesling. He lives across the street in a converted loft. Leiwer, a musician, moved to Downtown Los Angeles when he was 28, six years ago. His friend needed a person to share the cost of rent. He’s been here ever since. “I felt the allure of it,” Leiwer says. “It was seductive. You get to know everyone and you build a circle of friends.” But he worries how long he’ll be able to stay in his place. Rents around him are rising quickly. As people without ties to the area move in, he worries downtown will lose its charm.

“People moved here because they saw the chance to make something of the place,” Hernandez says. “We don’t want to be priced out of our homes.”

Already home to some of the densest urban areas in the country, California is seeing job growth outpace home construction in many areas, often by ratios as high as five to one. The San Francisco Bay Area has the worst mismatch of new jobs and available housing in the country.

From 2010 to 2015, the Bay Area gained 531,000 jobs and 487,000 people, but only issued permits for 82,000 new housing units, according to Graham MacDonald, a recent graduate of the Goldman School of Public Policy at UC Berkeley. MacDonald also found that home and rental prices increased an average of eight percent per year, forcing many lower-income workers to move outward, away from their jobs, to find housing. That migration, in turn, has dramatically increased the average commute for these workers. Across the country, the affordable housing crisis could be responsible for more than $1 trillion worth of lost economic opportunity each year.

In San Francisco, that tiny peninsula with about 47 square miles of space, physics limits what can be built. But even where developers have managed to lay down stakes, they’re confronted by an array of problems, the most prominent of which is regulatory. Kim-Mai Cutler, a journalist who has covered the Bay Area’s housing problems for TechCrunch, calls the land-use sagas there “Brobdingnagian.” The city “is governed by this teetering Jenga tower of regulations that has been painstakingly erected block by block over decades and that is precariously balanced between tenant and property-owner interests,” she writes. More units built means that supply increases, which means, if economic laws work, that homes and buildings won’t appreciate as much. Cutler has chronicled the NIMBYism that is the result, fed by laws that give residents plenty of ways to challenge, slow, or halt development outright.

California has no grand solution, except for building. “We have to build,” says Brigham Yen, an urbanist and real estate salesman who has been a booster of downtown development for years. Yen, 31, knows who owns each building in Los Angeles – and often the property managers themselves – and has developed an instinctive dislike for preservationists. “These NIMBYists have such a narrow vision about the future,” he says.

Photo: Marc Ambinder

When I ask Yen about housing prices, mentioning that certain units are selling for as much as three dollars a square foot – he corrects me – “oh, it’s higher. Four dollars.” So how can people who don’t make a lot of money afford to live here? “They can’t, right now. I mean, there is no question.” Yen himself ran a blog praising Downtown L.A.’s renaissance years before he could afford to live here.

As we walk down Flower Street, past a Macy’s anchor store that is being gutted and revamped from the inside out, he points to the construction cranes. “You just don’t see these anywhere else [outside of downtown], which is amazing, and kind of absurd, given how much we desperately need housing,” Yen says.

The Solution: From New Legislation to the Sharing Economy

The causes of the crisis are manifold: L.A. is growing, but most of its housing stock — about 80 percent of residential land — consists of single-story residential structures. (In 1986, the city passed Proposition U, which put the kibosh on most new high-rise developments across the city). Zoning laws impose expensive burdens on developers. For every ten people who move into the city, developers are able to squeeze in only two new units of housing. Rents are so high that as many as six in ten Angelenos spend more than a third of their income paying for a roof over their heads, the highest such burden anywhere in the country. It’s much worse for those who make less than $30,000. In surveys, a third of Angelinos tell pollsters they’ve experienced “extreme” levels of economic anxiety during the past year.

Even the physical signs of construction create an illusion that a lot more is happening than actually is. New residential buildings are often “amenitized” to justify their sky-high costs. The building owners care more about cash flow than they do about keeping residents. And when the buildings empty, usually after rapid rent increases, they can be sold to other companies. To attract future buyers, the larger buildings often displace locally owned businesses with chains, because chains tend to have more stable customer bases. “It’s really a cycle here: build or renovate a building, find stores, try to get people to move in. But if it stays empty, the developers aren’t lowering rents. They just clean the building and sell it,” Yen says.

So pressing are California’s problems that the state, with powerful labor unions and famously cumbersome regulations, might be on the verge of a major upheaval. Governor Jerry Brown, an iconic liberal, wanted the state legislature to approve a law that could speed up new construction significantly. Under his proposal, if a real estate project has the right amount of affordable housing, or if it’s transit-oriented and meets a set of standards, it would be given a speed pass around NIMBYism. The developments wouldn’t have to survive the state’s onerous environmental quality review – an instrument that’s been used to slow or kill hundreds of major projects statewide. Analysts suggest that the time it would take from conception to breaking ground could be cut in half. While politicians recognize that densification has to happen, they don’t want it to happen in their backyards. Density is not easy to sell to constituents. Its politics are complicated. Legislators faced pressure from interest groups opposed to the legislation, including the Sierra Club and Habitat for Humanity. In mid-August, the California Assembly announced that the bill was dead for the year.

“In California, it is far easier to plow under a green field than it is it make an urban areas more dense,” says the Bay Area Council’s Micah Weinberg. He notes that Gov. Brown’s initiative is being opposed by many of the state’s powerful labor unions. Accelerating development would probably employ large numbers of laborers, but the unions wouldn’t be able to establish more lucrative terms, called Project Labor Agreements, for building specific projects.

Other liberal groups have called for more government-built affordable housing. But affordable housing is not cheaper to build than regular housing. “It takes half a million dollars to build a single unit in some parts of San Francisco,” Weinberg says. “The government can’t subsidize that.”

In Los Angeles, Mayor Eric Garcetti and like-minded members of the city council’s City Planning Commission have taken the path of creative construction. For the first time, the city passed a 20-year mobility plan that gutted a number of antiquated regulations. One of them had required builders to give easements in case the city wanted to expand sidewalks on congested side streets. Already, the city is seeing an increase in construction that starts on side streets.

As it began to crack down on the small number of Airbnb renters who turned their properties into unregulated hotels, the city noticed that its own enforcement of decades-old livability requirements was taking hundreds of already existing units off the market each year. The city changed course. Now, converted garages, split apartments, and open attics can be legal, so long as the owners meet updated standards and register with the city.

That one reversal of enforcement will add back as many as 500 new units of affordable housing per year. Given the slow pace of construction, this means that L.A. has figured out how to conserve more affordable units over the next several years than it will be able to build during the next ten. It’s a small step, but barely imaginable years ago. The city has also taken steps to integrate ridesharing with its parking plans. The number of required parking spaces a new residential property must include will decrease. That might annoy prospective residents with cars, but it could push others to adopt different modes of transportation that make better use of space and resources.

City officials say they want Millennials to stay, and they’re disappointed that Millennials seem to be disconnected from local politics. “I have never seen Millennials at my hearings,” one influential city official told me. “And it’s a shame, because when they speak up, we listen.”

On L.A.’s West Side, which doesn’t have enough housing to meet the demands of younger, tech-savvy residents who staff the city’s “Silicon Beach” companies, a new housing development won speedy approval after one such company, Riot Games, encouraged its employees to attend the local planning meetings where it was being debated.

Millennials, predicts Dowell Myers, a housing scholar at USC, will age out of cities that don’t do enough to keep them. “A prime implication…is that city leaders should not grow complacent about retaining their Millennial residents,” he writes.

The Future: High Stakes in Getting Millennials to Stay

Urban scholar Joel Kotkin, who lives in Orange County, California, is known in planning circles as the quintessential “surburbanist.” Kotkin is wary of claims that Downtown Los Angeles – or downtowns, generally – are truly magnets for Millennials. “Yes, we had a bit of growth into them, but that was a blip. And the base for Millennials in the suburbs is five to ten times larger in many cases,” he says.

He predicts that Millennials who move in aren’t going to stay. “We’ll see that they’re just like everyone else. They’re start families sooner or later, and they’ll want space. And they’ll want good schools. And L.A.’s schools are just crappy.”

He opposes what he calls the “densification” of cities. “You’re never going to turn San Francisco or Los Angeles into New York. I don’t know why you’d want to.” He points to cities like Houston and Phoenix, and to Orange County, Florida, where the regulatory and tax burden on developers and homeowners are lower, and where home prices aren’t rising as quickly. If people can’t live in Los Angeles, he says, they will go elsewhere. You can get a nice one-bedroom apartment in a growing downtown enclave for around $800, but you’d have to move two states away, to Utah.

Los Angeles, at least, is determined to stay competitive. One way to do this is by increasing the ways to get around. Infamously, L.A. is dominated by cars and their drivers’ prerogatives. But the city’s long-term transportation plan is multi-modal. It aims to reduce the high percentage of Angelenos who take their trips alone, in their own cars, by making light rail, ridesharing, and even walking more efficient and economically viable.

In late May, with little fanfare, it celebrated a small but symbolically important milestone in its years-long transportation expansion: Using light rail, it’s now possible to get from downtown to the sands of Santa Monica beach in about 45 minutes. The cost: just $1.75.

It may be a while before Los Angeles finds the right recipe for keeping Millennials and their new families happy, but easy access to the beach is surely a good start.

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Funny how these folk complain about rent and want to “lock in” their rent, but if an employer tried to “lock in” their salary, it would somehow be unfair?

Things change, that’s life, if you can afford something now, that doesn’t mean you’ll be able to afford it later. And the reverse is true as well. Can’t afford LA, try Chicago, or St Louis or Philadelphia, millions live a nice life in each of those places.

And they’re affordable.

Anthony Brancato

But housing costs in Chicago, Philly, and even St. Louis are still well above the national average; for true relief, a move to Green Bay or Duluth – or even Fargo or Sioux Falls – is necessary.

unrepentantcapitalist

I see plenty of gray areas on the maps to move to, if you think rents are too high in the red areas……

Mike

I think LA is becoming like NYC where people have to Airbnb their apts when they go out of town (since the rents are so high). I could see Millenials “sharing” apts seasonally or periodically to not only subsidize rents but also to experience other cities without the hassle of moving.

dconklin

LA spent $400k to get 102 homeless off the streets. I can do it (two slightly different ways) for about $50k each. The question then becomes who can I talk to who would be interested in pursuing it?

Anthony Brancato

But older people – especially those without college degrees – face an even bleaker fate: They are largely getting squeezed out of the major metropolitan areas altogether, relegated to such areas as Fargo, North Dakota and Sioux Falls, South Dakota. And most of them are supporting Donald Trump – not because they are racists, but rather because neoliberal globalism is simply not working for them.

rich12

Want to live in a vibrant area with lots of jobs and cultural opportunities? Be prepared to pay for the privilege.